I've been studying this financial crisis for several years, in fact, it is one of the reasons we're doing RTW (Which is really more "we're going to travel full time" rather than a trip.)
It wasn't hard, with a basic study of economics, to predict what was going to happen, though exactly when is always hard to pin down. I knew the housing bubble would burst, but expected it in 2005 rather than 2007.
What we're seeing here is a very serious crisis. Its not just the news blowing it out of proportion.
We are not in a recession, we are in a depression. We have had depressions in the past, that's true, but for much of this countries history the financial system was based on gold and silver. Gold and silver a precious and do not come from a printing press. This means that there was always a floor under how bad things could get. Then in 1913 the federal reserve was founded, the issuance of fiat currency caused a boom, the insiders got out early, then they were able to buy up good businesses cheap after the 1929 crash. Then the president confiscated all the gold- or tried to-- esentially removing the floor from people's ability to pay for things (either they turned in their gold for worthless paper, or the kept their gold but would be criminals to use it to buy necessities) and the great depression was a result.
This time around we're experiencing heavy inflation-- around %20 per anum. (The government has stopped issuing key metrics, but most government economic metrics have been manipulated into meaninglessness for over a decade anyway.)
Growth in the economy is negative, and has been for over a year. This meets the definition of a depression. Its negative in real terms because, while even the optimisitic government numbers show positive growth, that growth is far below inflation (Even below inflation as it was under Clinton which was around %8 a year, only then there was a lot of real growth.)
The result of this-- as "Helicopter Ben" has promised is the intention of the Federal reserve to inflate its way out of any crisis. So ,when major banks start failing, the fed structures "takeovers" and then guarantees bad assets with money they will print. When %50 of the banks in the country go under-- in part due to feds asinine low reserve requirements-- the FDIC will long since be bankrupt (Another incentive for risktaking- the FDIC premiums do not reflect the risks being taken by the bank, thus the fund is essentially bankrupt already.) All these failures will be underwritten by the government.
And they won't do it by raising taxes or any other honest way. They will do it by inflation.
Are we going to expderience zimbabwe like inflation? The only answer to that is, absolutely yes. The clarifying question is, will it be due to this crisis (or the several other similar crisises that will be coming in the next 6-7 years) or not. That I don't know-- but once addicted to printing money to get out of problems, the government never gives up that power, and the ultimate result of that is always-- absolutely always-- hyperinflation.
Its happened in the USA twice already-- in fact, every time the US Government has used paper money, its printed it into worthlessness.
That we made it almost a century without having a hyperinflation is the anomaly.
But even if we don't have a hyperinflation, we are experiencing very significant inflation and its going to get worse. The "$700B Paulson Plan" alone is effectively %7 inflation for this year. That is to say it will take %7 monetary inflation for 2008 to pay for it.
Economics really is a science, and it can make predictions. Unfortunately most of whats passed off as economics is no more sound economics than Marx's economic theories in Das Kapital. In fact, much of what's passed off as economics is literally socialism justified using keynsianism. (Which doesn't work any better, but its got elaborate theories. And in the end it was a sham anyway, as keynes said that "via inflation the value of a country can be stolen and not one man in one hundred will realize what is happening to him." )
Anyway, long story short--
The US economy is hollow-- all manufacturing overseas.
The US Government is irresponsible-- irregardless of who gets elected, this kind of manipulation for insider profit has been going on for 70 years.
The US is in for a very bad time, probably hyperinflation a lot sooner than people think is possible, but at the very least, much worse than the 1970s.
You cannot sustain an economy where you make nothing and consume everything by paying for it with exports. -- and here's a point I should have made earlier-- our primary export is dollars. We've had low price inflation because the rest of the world has been happy to take our dollars and use them as a reserve currency. We are a debtor nation. When people no longer want our dollars, we're going to experience about 40 years of accumuluated inflation in the course of about 9 months. Once the tipping point is reached they will scramble to get out of the dollar ASAP, flooding the market, and giving us the effects of hyperinflation
-- likely the result of government obligations that are triggered by price increases will cause the government to cultivate this hyperinflation further by printing massive amounts of money.
The rest of the world has not been living high on the hog (excepting western Europe, they're going to have it worse) and will generally do better. Canada
will likely do quite well during this situation as the country has massive natural reserves and an economy based on natural commodities. Mexico
will do poorly as the flows of dollars that are sustaining it become worthless, or at least worth less.Panama
will likely do great- its already the expat nation of choice for capitalist venezualans. While panama may use the dollar currently, it has no central bank, and uses the dollar by default. When the dollar hyperinflates they will switch to another currency. My bet: The yuan. China's relationship with panama is very strong. south america
will probably boom, especially in argentina. Many americans and even more europeans will move there. They shouldn't have another currency crisis, having just had one, and having a more solid economy than the USA. Eastern Europe
will suffer but not do too bad, there will be a fair bit of growth and the disparity between eastern and western europe will likely go away. asia
Asia is going to boom. This is china's century, and if they play their cards right, all of asia is going to be a massive boom economy-- it might even get Japan growing again. But if not, Japans going to be the exception here.
These are just my thoughts in broad strokes. Due to the complexity and extent of what's going on, I've had to skip over stuff. (And still this has ended up being quite long.)
If you're interested in real economics perspectives on the current crisis, visit: The Bailout Reader http://mises.org/story/3128
For a good article on the nature of money: Money: Its Importance, Origins and Operations http://www.mises.org/story/3122
or the really short, free, book: "What has the government done with our money?" also by Murrey Rothbard http://www.mises.org/money.asp
The american economy and lifestyle are going thru a fundamental shift. One as significant as the great depression and WWII. But this one is not likely to leave us off stronger. We have high tech industry, but that's about the only spot where americans are competitive now, and we are going to have to pay for our fiscal irresponsibility-- both governmental and personal.
We're about to be forcibly realigned.solutions
Buy gold, silver, palladium and platinum. But one ounce bullion pieces, and I suggest finding a depository outside the USA to store it. (Remember in the 1930s they confiscated privately owned gold and it was illegal to own gold bullion at all until the 1970s. This is because government doesn't have your interest at heart, only its, and gold is the antithesis of paper money.)
Get out of dodge-- the next several years are going to be a good time to go see the world, rather than hang out in the USA wathcing it get forcibly realigned.